Month: January 2014

By MoneyMorning.com.au

Today’s Money Morning takes a different format than usual.

It’s Australia Day, so the Australian market is closed, and so is the entire Port Phillip Publishing office.

But seeing as you’ve opened this email today, my bet is you’re like me. You’ll still spend at least part of today reading about the markets and figuring out what to do next.

In that case, let me see if I can help…

Investing is all about ideas.

If you don’t have any ideas you’ll never know what to do with your money.

The same goes with financial advisors. A financial advisor should have ideas too. Some financial advisors just copy ideas. They just follow the crowd, doing what everyone else does.

The best financial advisors come up with their own ideas. They think up original ideas. Or if they can’t come up with their own ideas they at the least have the vision to get in on an idea early…before the rest of the crowd.

That’s the point where you enter the frame as an active investor. If you want to control your savings and build long-term and lasting wealth, you have to make yourself familiar with these ideas and then decide which are most likely to help you achieve your investing goals.

Up until now, this issue of Money Morning may have seemed like any other. But from here on things change.

An Australia Day Treat

I said at the top of this Australia Day edition of Money Morning that I’d like to help you out. I’d like to give you a helping hand with building your wealth.

Now, I can’t do that directly. I can’t give you the secret to eternal wealth. But I can do the next best thing. I can introduce you to some of the best investment ideas from the best investment thinkers on the Aussie market today.

In order to find out what these investment thinkers have on their mind right now, I’ve gone through their latest research reports and notes to pick out the key themes they’re discussing with their readers right now.

I hope you enjoy it, and I hope it gives you something to think about as you enjoy the rest of your Australia Day holiday…

Big Thinker #1

First up is my old pal Dan Denning. Dan is one of the best big picture thinkers I know. I’m not sure that there’s a trend he hasn’t been among the first to spot in the nine years I’ve known him.

And now Dan has three big trends that he sees forming in 2014. Dan says the Aussie market will perform worse than overseas markets this year:

‘Without an ambitious plan of money printing from the RBA, local shares won’t compete with their blue-chip brethren overseas in 2014.‘

This will also be bad news for the Aussie dollar and the Aussie economy. Dan sees the Aussie falling further this year:

‘The weaker the balance sheet, the more dangerous for the Aussie dollar, which is the RBA’s main liability.‘

But if you think the outlook is bleak for the Aussie dollar, things could look even worse for gold investors. Dan says:

‘For commodity and gold investors, more pain could come before the big rebound begins…‘

In fact, Dan doesn’t just see a minor downturn; he’s pegged the Aussie economy to enter a full-blown recession. In a recent weekly update to Denning Report subscribers he wrote:

‘Higher unemployment will add to government welfare payments. But the real effect is in the dollar. The Aussie dollar fell nearly 1% after the jobs data came out. The dollar is beginning to price in higher unemployment.

‘The weaker dollar is a mixed bag. It should be good for companies that sell overseas. That’s a move you could try and trade. But the mixed part is that a weaker dollar means higher import prices, which will pressure retail stocks. What the weaker dollar giveth, the weaker dollar taketh away.

‘The stock market hasn’t begun to factor this in to prices. Most economists and fund managers believe that because unemployment is a lagging indicator, this suggests that the worst is behind us. I’m afraid to say they’re wrong. It’s no fun pointing it out. But it is what it is.‘

You can get more insight into Dan’s thoughts here.

Big Thinker #2

Taking a slightly different view on the outlook for the Aussie economy and commodity prices is Jason Stevenson, our new Diggers and Drillers analyst.

Jason’s primary role is to uncover the most exciting resource stocks on the planet. The good news for Jason (and his subscribers) is that most of the best opportunities are right here in Australia.

The fact is that Australia has a comparative advantage when it comes to natural resources. Other countries can’t just create iron ore, copper or bauxite from thin air.

Sure, it’s luck. But heck, it’s one thing to be dealt a good hand; it’s another thing to make the most of that hand. For the most part Aussie mining firms have done that over the past 50 years.

But now, after the commodity crashes of 2008 and 2011, it’s time for Aussie mining stocks to reset and start again. The same is true of investors. It’s time to rethink old investing ideas and focus on the future.

One of those ideas is what investors can expect from the gold price. In a recent weekly update Jason told his readers:

‘Although I’m bullish on the sector, I continue to say that gold could go lower (my target is $1,037.34/ounce). That won’t come as pleasing news if you’re still hanging out for gold to go to $2,000 or even $5,000 as some commentators have claimed over the years.

‘The reason for my near-term bearish view on gold is that it’s in a long-term technical downtrend. It has been falling for the past two years. It’s now down around 36% from its peak.

‘When you’re looking at investments it’s important to look at these trends. I don’t like going against the trend because more often than not, you end up ‘catching a falling knife’ and losing a lot of money. As the saying goes, ‘the trend is your friend’.‘

That view will be a shock for those looking for $5,000 gold. But the role of an analyst is to tell it as they see it. I’m in Jason’s camp on this one. I view gold as an integral part of any portfolio, but I wouldn’t hold my breath waiting for it to do much soon.

You can find out how to get more of Jason’s analysis here, including his latest research on the best iron ore stock to buy today (clue: it’s not BHP Billiton).

Big Thinker #3

It’s easy to think that investing is all about which stocks to buy and sell.

There’s no doubt that’s the exciting side of investing. Think about the financial news reports on the TV. What video images do they usually show you?

That’s right, it’s usually the frantic trading floor of the Chicago Board of Trade or the brokers and market-makers milling about on the floor of the New York Stock Exchange.

(Although to be fair, since the move towards computerised trading, the trading floors aren’t as frantic as they used to be.)

The one image they don’t show you is of an investor sitting back in a chair reading a book, hitting balls on the golf course, or sipping pina colada’s on the beach while income ‘cheques’ from their investments drop into their bank account on a regular basis.

There’s no excitement in that. And yet for most people, taking a relaxed (but not passive) approach to investing is a much more realistic way to handle their investments.

This is exactly the investing approach advocated by my old buddy Nick Hubble, the editor of The Money for Life Letter. Just last week he told me a story about a retiree named George.

According to Nick, George isn’t your typical retiree. You can find out why here.

Big Thinker #4

Someone else with a relaxed attitude to investing is Vern Gowdie. Vern has been something of a controversial figure since he joined Port Phillip Publishing last year.

That surprised me, in a way. But in another way I can see why it’s not surprising, and why his investment strategy has ruffled so many feathers among readers.

To look at Vern, he’s the last person you’d expect to put someone offside. But his investment allocation strategy is controversial. Unlike most financial planners (Vern was in the game for 26 years before joining our team) he’s not interested in shoving investors into investments just so he can earn a commission.

In fact, arguably Vern doesn’t currently recommend any investments for anyone – unless you count straight cash as an investment. That’s right, Vern’s simple asset allocation strategy involves holding cash and nothing else.

Vern recommends cash because he fears a catastrophic stock market collapse.

Now, Vern isn’t saying the market will crash tomorrow. He admits he doesn’t know exactly when the stock market will hit the skids. But what he does know is that the current global economic set-up of huge government and personal debt levels isn’t sustainable.

Because of this risk he suggests investors stay in cash until stocks return to a more reasonable level.

It’s a brave call. You won’t find many investment professionals who are prepared to tell their clients to hold nothing but cash. For that reason, even if you end up disagreeing with Vern’s view, his thoughts make for compelling reading. Check out more from Vern here.

Big Thinker #5

At the opposite end of the spectrum from Vern is tech guru Sam Volkering.

Sam’s the last person who would recommend an all-cash investment strategy. In fact, Sam’s more likely to think that cash – in its current form – won’t even exist within the next 10 years.

That’s one of the key themes Sam has followed since I hired him to be the technology analyst for Revolutionary Tech Investor.

Sam sees the future of money as a purely electronic medium of exchange. He sees the future of money in crypto-currencies like Bitcoin. He sees people buying goods not using cash or a credit card, but rather using biometric technology such as finger print or eye scanning.

Or more radically, he sees the future of money as a subconscious transaction, where it just happens without you thinking about it or needing to do anything to make it happen.

It may sound like a strange concept, and you may think that it’s too bizarre to ever happen. But to a large degree the technology already exists. Kids at some schools in the UK can already pay for their lunch using biometric technology.

And wi-fi technology already exists that can send data wirelessly between electronic devices. The only thing that’s delaying the end of bank notes and coins are the concerns about security. Once cyber security firms can nail down that issue, it won’t take long before consumers and businesses convert to using 100% electronic money.

The end of money as you know it is nigh. Sam has picked out two cyber-security firms he says are poised to benefit from the shift to a cashless economy. Details here.

Big Thinker #6

In a similar vein to Sam is small-cap analyst Tim Dohrmann. Tim’s background involves time in London working on the equity desk for one of the world’s biggest investment banks.

He now brings that experience to the Aussie small-cap market, helping to identify investment opportunities for Australian Small-Cap Investigator subscribers.

To be honest there’s nothing complicated about the small-cap market. It’s pretty simple. You find stocks trading at a discount to their future potential value, and then you buy them and wait.

Sounds easy right? The only problem is that of the 2,000 ASX-listed stocks, around 1,800 of them can be thought of as small-cap. To add to the difficulty is the fact that not every small-cap company will achieve its promised potential.

That’s where analysts like Tim have to knuckle down and filter the wheat from the chaff (sorry for the cliché, but it’s true).

So, where is Tim looking for small-cap investment opportunities? Here’s what he recently told Australian Small-Cap Investigator subscribers:

‘My best bet for 2014 is to get involved in emerging growth. This typically – but not exclusively – means investing in small technology companies.

‘The stage has been set with low rates, improved business confidence…, a backlog of companies wanting to float and weakness in the Australian dollar. These factors all drove the flurry of IPO activity we saw into the end of 2013.‘

Tim has his eye on more IPO opportunities this year. Not all of them will make the grade. But it’s not just IPO’s on Tim’s watchlist. He also likes small-cap financial stocks, the kind of companies operating in markets where the big banks won’t tread.

One such company made it to the top of Tim’s list in the January issue of Australian Small-Cap Investigator. Get access to Tim’s research now by clicking here and following the instructions.

Big Thinker #7

Finally, our old pal Greg Canavan. Like Dan Denning, Greg sees plenty of problems ahead for the global economy. Greg writes the big picture investment newsletter Sound Money. Sound Investments.

One of Greg’s key themes in recent years is the problems facing China. Greg fears that China’s infrastructure spending binge and high personal debt levels will be one of the big issues to hit the markets in the near future.

Responding to an article in Reuters which explained that one-third of wealthy Chinese have already left China, Greg wondered what these wealthy individuals know that the rest of us don’t.

As he wrote in the free daily eletter, The Daily Reckoning:

‘If 30% of wealthy residents are bailing, does that bode well for the future? Probably not. They’re either taking their ‘wealth by corruption’ before it’s confiscated, or they’re genuinely wealthy and don’t like where China’s headed.

‘Either way, it’s a reflection that wealth won’t be so easy to come by in China in the coming years.

‘In fact, it won’t be so easy anywhere. The “Great Reflation” has just about run its course. We’ve just experienced five years of unprecedented monetary stimulus. Can we get five more years? Sure, but the central bankers will have to take things to another level if they want to get greater “results”.

‘That is, it requires ever greater amounts of monetary fuel to keep the fires of inflation going. If you stop, the flames die down. If you stop for long enough, they go out. It becomes cold, and deflation emerges.‘

Deflation is the hot topic among central bankers. They hate it, and they’ll do anything in their power to prevent it from taking hold. You can read more of Greg’s thoughts on deflation and the prospects of further central bank manipulation in The Daily Reckoning each weekday. Click here to subscribe for free.

*****

That’s all for this special Australia Day version of Money Morning. I hope that in some way it has helped you get through the day while the ASX is closed.

As I said at the top, investing is about ideas, and finding the ideas that best suit your style of investing.

You may not agree with all the views in today’s issue of Money Morning, but it should give you something to think about when you next have to make a choice about investing your money.

As for my take? I’m on record as saying that the Aussie stock market still has much further to go. I’m a buyer of stocks for as long as interest rates stay low and central banks see the need to meddle with the markets.

You’ll have to wait until the end of the year to see whether I’m right or not. So, why not keep a copy of this email handy? You can refer back to it at the end of the year to see which of our ‘Big Thinkers’ have got it right, and which got it wrong.

I’ll be back tomorrow with your regular edition of Money Morning.

Cheers,
Kris+

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By MoneyMorning.com.au

Article by Investazor.com

It has been a bumpy week for the Euro with the US dollar currency pair. It started by dropping to a new low in the first trading day and maintained a low price during the first part of the week after the German ZEW disappointed, but had a fast comeback after the flash manufacturing and services PMIs got published. All the released PMIs were above analyst forecast surprising the market and building momentum for the Euro buyers.

Though it was a very good week for the European single currency it might not be enough to turn the odds its favor. We have an important week ahead with important economic releases for the United States and not to forget about the FOMC statement which could trigger another rally for the American dollar. Continue reading our article to see what the main events of the week are and have an update on the technical view.

Economic Calendar

German IFO Business Climate – Monday (09:00 GMT). This indicator surprised the market in November with a reading of 109.3, above any expectations, while on December was almost in line with the 109.7 forecast. For this week it is expected ti be published around 110.2, a big difference between the actual value and the expected one could trigger high volatility.

Eurogroup Meeting – Monday. These meetings are attended by Eurogroup President, Finance Ministers from the Euro Area member states, the Commissioner for the economic and monetary affairs and the ECB president. They usually held in Brussels. The decisions taken here most of the times have an important impact upon Eurozone’s economic health.

Weidemann speaks – Monday (18:00 GMT). Jens Weidemann is the current President for Deutsche Bundesbank. He will speak in Germany and have in his agenda ticked a the inflation problem from the Euro Area.

GfK German Consumer Climate – Wednesday (07:00 GMT). This is the level of a composite index based on surveyed consumers. It has exceeded its forecast in November and December. For this month it is expected to be above last month’s reading, around 7.8.

German 10-y Bond Auction – Wednesday. This is offered by Bundesbank and it is the average yield of the 10 years government bonds sold at auction. From September last year the yield has dropped from 2.06 all the way to 1.69.

German Prelim CPI – Thursday. From the economic releases calendar it is pretty obvious that Germany doesn’t confront itself with the deflation danger. The Consumer Price Index has exceeded its estimations for November and December. For January it is expected to drop with 0.4%. A positive surprise could send the Euro higher on the release trading day.

Spanish GDP – Thursday (08:00 GMT). This is a quarterly release. The last two publications were in line with the estimates -0.1% respectively 0.1%. This month Spain’s GDP is expected to gain 0.3%.

German Unemployment Change – Thursday (08:55 GMT). This macro indicator it is pretty volatile and has a low to medium impact on the market. For this month it is expected at -5K.

German Retail Sales – Friday (07:00 GMT). This is the last economic indicator that will be published for Germany next week. For December the surprise brought by this economic data was quite big. Expected to gain 0.5%, it was published 1.5%. For this week the forecast are of +0.2%.

CPI Flash Estimates – Friday (10:00 GMT). The ECB has its eyes over the price stability for the Euro Area. In this period the CPIs are pretty important for investors. The year on year change it is expected to get up with 0.9%, a value which is way below the 2% target of the Central Bank. A lower value of this release could mean an important drop for the Euro.

Unemployment Rate – Friday (10:00 GMT). The Euro Area Unemployment Rate has maintained itself around 12.1% during the past 6 months. The same number is expected to be released by Eurostat next week.

As you can see, there will be a lot of German economic indicators published next week. Even though it will be a bigger number of releases, their importance is quite low. Most of the indicators mentioned have medium impact on the EUR/USD currency pair on the very short term. As we told you before while trying to understand the possible evolution of the pair a trader should also take a look over the economic releases from the United States.

Monday – New Home Sales: Exp. 457K;

Tuesday – Core Durable Goods Orders: Exp. 0.7%; S&P/CS Composite: Exp. 13.7%; CB Consumer Confidence: Exp. 78.1;

Wednesday – FOMC Statement; Federal Funds Rate: Exp. <0.25%;

Thursday – Advance GDP q/q: Exp. 3.2%; Unemployment Claims: Exp. 331K; Pending Home Sales: Exp. -0.1%;

Friday – Core PCE Price Index: Exp. 0.1%; Chicago PMI: Exp. 59.0; Revised UoM Consumer Sentiment: Exp. 81.0.

As you can see the scheduled publishing for the United States are important and with a high impact on the market. It is vital to not forget the FOMC statement which could be accompanied by very high volatility before and after the release. Investors are still waiting for modifications in the Quantitative Easing program.

Technical View

EURUSD, Daily

Support: 1.3400;

Resistance: 1.3800;

The price of EUR/USD rallied after it touched a new low, broke the upper line of the Rising Wedge and ended the week with a Daily Shooting Star. Even if the last signal was bearish, I believe that there is a chance for the Euro to get back around 1.3800, after a retest on the broken line. On the medium term I still believe that bears are stronger and could maintain the price in this 400 pips range.

EURUSD, H1

Support: 1.3665, 1.3693, 1.3581, 1.3506;

Resistance: 1.3698, 1.3730, 1.3800;

On the 60 minutes interval this currency pair has respected, during last week, each and every support and resistance that we proposed. After a consolidation around 1.3550 the price rallied all the way to hit a high above 1.3700, but couldn’t maintain the level. Bears pushed the price back, but found a local support at 1.3665. A drop, under this latest level mentioned, could mean a retest on the 1.3640.  A close above 1.3730 resistance would mean that the door is open for a rally to 1.3800.

Bullish or Bearish

On the medium term I still believe that the US dollar could get stronger. The intraday view has changed during last week because of the latest price action. Even though I would be tempted to say that I would go long on the Euro for this week, I believe it would be safer to wait for the FOMC statement which could enforce my belief or change the balance again in favor of the dollar. Keep your stops tight until this event.

The post EUR/USD Forecast January 27-31 appeared first on investazor.com.

GOLD: With the commodity extending its corrective recovery the past week, it is entering the new week biased to the upside with eyes on more strength. It is holding slightly above its key support consisting the 1.267.75 level and its declining trendline resistance. It must hold above these levels to build on gains towards the 1,300.00 level where a violation if seen will turn focus to the 1,350.00 level. Further out, resistance resides at the 1,400.00 level, its psycho level. Its weekly RSI is bullish and pointing higher suggesting further strength. On the other hand, if it fails to hold above the 1.267.75 level and its declining trendline resistance, the risk will be for decline to occur towards the 1,231.48 level. Further down, support comes in the 1,218.35 level, representing its Jan 08’2014 low. This level must hold to prevent a return to the 1,182.33 level, its Dec 31’2013 low from occurring. However, if that level is violated it will aim at the 1,150.00 level followed by the 1,100.00 level. All in all, GOLD remains biased to the upside on correction.

Article by www.fxtechstrategy.com

EURUSD: With EUR reversing its previous week losses to return above its broken trendline, further recovery gains are likely in the new week. If this happens, the pair could force further strength towards the 1.3818 level, its Dec 30 2013 high where a violation will expose the 1.3750 level, its psycho level where a break will target the 1.3898 level, its Dec 2013 high. Above here will trigger its medium uptrend resumption towards the 1.3950 level and then the 1.4000 level, its psycho level. Its weekly RSI is bullish and pointing higher suggesting further strength. Conversely, on any pullback, support comes in at the 1.3620 level, its rising trendline support. Further down, support stands at the 1.3550 level and then the 1.3500 level. All in all, EUR remains biased to the upside on further bull threats.

 Article by www.fxtechstrategy.com

By Nick Giambruno, Senior Editor, International Man, Casey Research

“In this world nothing can be said to be certain, except death and taxes.”
–Benjamin Franklin

You are technically a slave when 100% of the fruits of your labor is taxed or otherwise confiscated by force. So, at what percentage are you not a slave?

When you consider the totality of the countless direct and indirect taxes on the local, state, and federal levels, as well as the pernicious effects of inflation, the hidden tax, many of us are at least halfway to 100%.

It is no mystery, then, why growing numbers of individuals and businesses seek ways to legally reduce this suffocating burden through structuring their affairs in low-tax jurisdictions.

Lately, with all the so-called “controversy” blaring from the media about low-tax jurisdictions (aka tax havens), and politicians piling on the wagon to denounce them, it’s no surprise that most Americans harbor the false impression that they are only for the super rich, or multinational corporations, or those engaged in illegal activity.

That is a misconception, however; tax havens offer a number of legitimate and completely legal functions that even Americans of modest means can advantageously employ.

Uh, About Those Taxes, Mr. Franklin…

In most instances, Mr. Franklin’s observation quoted above would be correct, certainly for American citizens and legal residents. However, for Americans who earn income in certain jurisdictions and meet qualifying IRS requirements, it is possible to prove Ben wrong.

First, note that the US, unlike the rest of the developed world, is the only country that enforces a system of citizenship-based taxation. This means that Americans are taxed on their worldwide income by virtue of their citizenship without regard to their country of residence. For example, an American expat who is a legal resident of and working in Switzerland, must file and pay taxes to both the US and Switzerland for income earned in Switzerland (the IRS allows credit for foreign taxes against your US tax obligation, but you might still end up paying taxes to two governments).

In contrast, the rest of the developed world practices a system of residence-based taxation. Under this system, you are only required to file and pay taxes in the country where you are a legal tax resident.

In short, American citizens and green card holders cannot escape the burden of filing and paying taxes to the US government, no matter where on earth they live or earn income. It is a unique burden that no other developed country places on its citizens.

An unfortunate example of American exceptionalism, I suppose…

An Exceptional Loophole

There is a silver lining, however, and that is the Foreign Earned Income Exclusion (FEIE).

What is it and how does it work?

If you qualify for the FEIE you can exclude a not-insignificant amount of foreign earnings from your US taxable income. This amount is adjusted annually for inflation and is set at US$97,600 for 2013.

To qualify for the FEIE, you must have foreign earned income and be either:

1. A “bona fide resident” of a foreign country or countries for a continuous period that includes an entire tax year, or
2. Physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

Additionally, your tax home must be in a foreign country throughout the period. The IRS defines “tax home” as “the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual.”

While the physical presence criterion (#2 above) is pretty straightforward, the “bona fide resident” test is less so. Basically, you must prove that you have established roots and a permanent presence in a foreign country. Without getting into too much legal jargon, TurboTax walks you through this process step-by-step and determines if you qualify for the FEIE or not. It is actually fairly simple to determine in most cases. Consult a tax professional if individual circumstances are more complex.

So, assuming that you qualify for the FEIE, you can exclude up to US$97,600 of your foreign earned income (for 2013) from your US taxable income. Keep in mind that the FEIE only reduces your US taxable income; you still have a tax liability to the country in which you reside and earned the foreign income.

That is unless you earn your income in one of these 18 countries that have no personal income tax:

Ben Was Only Half Right

The key here is to have a portable job or the ability to transplant yourself and your business to one of these 18 countries. This strategy is particularly well-suited for businesses or professions dealing with intellectual property, writers (freelance or otherwise), Internet publishing, skills that are needed in one of those countries (like engineers and medical professionals), or an income stream that can be moved across borders easily.

Through qualifying for the FEIE and utilizing the 18 countries above, Americans are able to legally prove Benjamin Franklin was only half right; taxes are not necessarily inevitable… well, at least on the first US$97,600 of foreign earned income.

Fortunately, it is still legal to take steps like this to internationalize yourself and reap the benefits of diversifying your political risk. However, if history is any guide, the window will not be open forever. Especially as governments (particularly in the West) become increasingly desperate as their fiscal situations continue to deteriorate. Learn more about it with Going Global 2014 – a report specifically geared toward teaching you the ways to internationalize yourself and your wealth.

Weekend Update – www.thepracticalinvestor.com

January 24, 2014

— VIX vaulted past its mid-Cycle resistance and the December high at 16.75 this week in its largest jump in 6 months.  This confirms the change in trend.  It is now due to break through the Triangle trendline near 21.00 and challenge the weekly Cycle Top resistance at 22.42.

SPX is now inside the Ending Diagonal.

— SPX plunged through the upper trendline of its Ending Diagonal after its worst week in 19 months, closing above weekly Intermediate-term support at 1787.17.  The Orthodox Broadening Top, otherwise known as a “Megaphone” pattern, is still the key formation at this juncture.  A decline from this peak through the bottom trendline of the Broadening Top completes the formation while testing support for both the bottom trendline of the Ending Diagonal and the 14-year trendline shown in the chart. Beneath those two supports may be a possible free-fall event.

(Bloomberg)  U.S. stocks sank the most since June, capping the worst week for benchmark indexes since 2012, as a selloff in developing-nation currencies spurred concern global markets will become more volatile.

NDX slips below its trendline.

— NDX closed the week beneath the upper trendline of its Ending Diagonal formation closing above weekly Short-term support at 3521.22.   The 4.8 year rally may now be finished.  The next confirmation of a reversal would come with a further decline below the Cycle Top support/resistance line at 3497.83.

(ZeroHedge)  While the world of speculative capital is focused intently on the Twitter and Facebook #Ref/0 fundamental valuations in the publicly-traded equity markets, as the WSJ illustrates, the real dot-com 2.0 bubble is occurring in the private markets. Today there are more than 30 companies in the US, Europe, and China that are valued at $1 billion or more by venture-captal firms and the club is becoming less exclusive as venture capitalists (in their ever growing speculative fervor) funnel large sums of capital into start-ups.

The Euro rallies while Kiev burns.

.  

           — The Euro appears to have completed a 56% retracement of its initial decline from the top of Primary Wave [2].  It closed above both Short-term support at 136.63 and Intermediate-term support at 136.13, but may have little trouble slipping beneath them.   Final supports are at 133.40 and 130.95, beneath which the Euro decline may accelerate.

(ZeroHedge)  It will be a long night in Kiev:

• KIEV CLASHES RESUME BETWEEN PROTESTERS, POLICE: CHANNEL 5 TV

• KIEV PROTESTERS ATTACKED AFTER POLICE INJURED ACTIVIST: TV 5

• UKRAINE PROTESTERS THROW MOLOTOV COCKTAILS, ROCKS AT POLICE

• UKRAINE POLICE RESPOND WITH RUBBER BULLETS, STUN GRENADES

• UKRAINE POLICE BLAME PROTESTERS FOR BREAKING TRUCE: STATEMENT

The Yen makes a final bounce before the plunge.

–After it challenged the Head & Shoulders neckline at 95.50, the Yen bounced through Short-term support and may be aiming for Intermediate-term resistance at 98.79 by mid-week.  A breakdown through the neckline of the massive Head & Shoulders formation suggests a continuation of a Primary Wave [5] in a very strong decline that may last through mid-February.

(Reuters) – Emerging market currencies were battered on Friday as global investors scrambled for shelter from a broad financial markets selloff by buying dollars, yen and Swiss francs.

The Japanese yen surged to a seven-week high against the dollar, while the Swiss franc touched a four-week peak against the euro as U.S. stocks tumbled and safe-haven Treasuries gained.

The US Dollar tagged the Triangle trendline again.

— USD touched the lower trendline of the massive Triangle formation this week at 80.22, closing beneath the entire Cycle Resistance cluster.  This move may not necessarily be considered bearish, since the dollar did not make a new low and a possible double Cycle low is due by Monday.  The Cycle Model suggests the next rally may last through the end of February (possibly longer) that may bring the USD above its inverted Head & shoulders pattern shown in the chart.

Gold rallied to  the trendline of its weekly Trading Channel.

— Gold rallied to the upper trendline of its trading channel and weekly Intermediate-term resistance at 1268.80, closing there.  A bearish Cup with Handle formation may be triggered beneath the Lip at 1181.40, so be prepared for that eventuality once gold turns back down.   There are simply too many goldbugs who have called for a bottom to be a valid one.

(Reuters) – Congress party chief Sonia Gandhi (India) has asked the government to review tough import restrictions on gold, which include a record 10 percent import duty, a television channel and a news website said on Thursday.

Her intervention is likely to create pressure for an easing of rules that have hammered the bullion industry and brought a surge in smuggling, but the finance minister said the curbs would not be rolled back anytime soon.

Treasuries escape their Trading Channel tendline.

— USB surged past the upper trendline of its Trading Channel, which causes some technical uncertainty.  Normally an impulse Wave will stay within the channel defined by its highs and lows until it completes all five waves.  Usually Wave (5) would go much deeper, possibly all the way to the lower trendline before being complete.  So, this occurrence may be an anomalous Minor Wave 2 correction instigated by the sell-off in stocks and a technical bounce from the 32.25-year rising trendline in the long bond.  A major dealer is making such a claim.  If so, this could be a bull-trap for those seeking a safe haven in Treasuries.

Is this the final bounce before the plunge?

— Last week I had suggested that Crude had completed its bounce from the neckline of its Head & Shoulders formation.  I had miscalculated.  It appears that the bounce may now be over and a stunning decline may be in order.

(OilPrice.com)  The year 2014 could pose a milestone for the U.S. oil industry. In its latest annual World Energy Outlook, the International Energy Agency predicted that the U.S. would become the world’s largest producer of oil by 2015, thus surpassing Russia and Saudi Arabia.

Comparably, the U.S. Energy Information Administration estimates that the U.S. will produce 9.6 million barrels of oil per day by 2016. In less than a decade, the shale revolution in the U.S. has reversed a four decade-old trend of increasing oil imports to become a major exporter by the end of this decade.

China bounces from its Cycle Bottom.

–The Shanghai Index completed an impulsive decline from its upper trading channel trendline and bounced near its Cycle Bottom support at 1963.24.  The bounce may be complete, or nearly so, giving SSEC a high probability of making new lows.  The duration of this decline may not be finished until late February to mid-March..

(ZeroHedge)  China faces a very significant test of its reform policy pursuit rhetoric. With China’s Bank regulator set to issue an alert on coal-industry loans – “as a result of outout cuts, they don’t have much cash flow and thus they can’t repay loans and debt,” the massive growth in wealth products such as the CEG#1 (which offered a 10% yield for a 3 year term) based on these loans leaves the Chinese with a moral hazard dilemma – bailout or no bailout. ICBC has made it clear it wil not bailout investors since reputational damage would be “well manageable,” and former-PBOC adviser Li Daokui adds that “a controlled default is much better than no default,” noting critically that trust defaults “will teach future investors a very important lesson.”

The India Nifty bounces from Intermediate-term support.

— The India Nifty may have completed its retracement after bouncing from Intermediate-term support at 6172.98 two weeks ago.  The decline may now resume and continue through mid-February.  This decline may be deflationary to an extreme, since equities have become thoroughly saturated with liquidity from India’s central bank and simply cannot absorb any more.  Indian investors are leveraged to the hilt.  The potential for a panic decline to the weekly Cycle bottom (4787.24) is very high.

The Bank Index closes beneath Short-term support/resistance.

— BKX  declined and closed beneath weekly Short-term support/resistance at 68.69.  The 50% Fibonacci retracement of its 2007 to 2009 decline is at 69.46 suggesting a retracement is complete and the current Cycle is primed for a reversal.  The resumption of the secular bear market may be most spectacular in BKX.

(ZeroHedge)  Following research last week suggesting that HSBC has a major capital shortfall, the fact that several farmer’s co-ops were unable to pay back depositors in China, and, of course, the liquidity crisis in China itself, news from The BBC that HSBC is imposing restrictions on large cash withdrawals raising a number of red flags. The BBC reports that some HSBC customers have been prevented from withdrawing large amounts of cash because they could not provide evidence of why they wanted it.

(ZeroHedge)  Curious why over the past few months JPM has quietly been accumulating a substantial amount of eligible physical gold (even as its registered gold inventory is the lowest it has ever been at just 87K ounces since December 13, 2013 when 147K ounces of gold was withdrawn – keep that date in mind for a few minutes)? This may have something to do with it: moments ago the daily Comex gold vault report confirmed what many expected, namely that the JPM accumulation was merely in advance anticipation of major withdrawals. How major? Well, on January 23, JPM saw 321,500 ounces of gold depart in one day. This was tied for the single biggest daily withdrawal in history!The last time JPM had an identically sized withdrawal? December 13…. 2012.

(TheNewYorkTimes)   Some banks in the euro zone could go out of business as a result of intense official scrutiny they will face this year, Mario Draghi, the president of the European Central Bank, said Friday as he presented a generally upbeat view of the European economy that was, however, laced with warnings.

The E.C.B. is scouring the books of euro zone banks this year in an effort to expose hidden problems and restore trust in the integrity of European lenders. Mr. Draghi said he did not know whether any banks would need to be shut down following an honest appraisal of their financial health. But if so the E.C.B. and euro zone governments are prepared to deal with the consequences, he told an audience at the World Economic Forum in Davos.

(ZeroHedge)  Earlier this week we reported that at JPMorgan, the many will pay for the crimes of the few, after the bank revealed that compensation for most workers would be flat with 2012, and no raises were planned for the bank’s employees as a result of the massive, $20+ billion legal bill the bank has raked up in recent months as one after another market manipulation, fraud and malfeasance by current and former JPM workers has been revealed. One person, however, will be exempt from this blanket punishment: the firm’s CEO Jamie Dimon, of course. Because there is always a reason Jamie is richer than you…

Regards,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

P.O. Box 129, Holt, MI 48842

www.thepracticalinvestor.com

Office: (517) 699.1554

Fax: (517) 699.1558

Disclaimer: Nothing in this email should be construed as a personal recommendation to buy, hold or sell short any security.  The Practical Investor, LLC (TPI) may provide a status report of certain indexes or their proxies using a proprietary model.  At no time shall a reader be justified in inferring that personal investment advice is intended.  Investing carries certain risks of losses and leveraged products and futures may be especially volatile.  Information provided by TPI is expressed in good faith, but is not guaranteed.  A perfect market service does not exist.  Long-term success in the market demands recognition that error and uncertainty are a part of any effort to assess the probable outcome of any given investment.  Please consult your financial advisor to explain all risks before making any investment decision.  It is not possible to invest in any index.

The use of web-linked articles is meant to be informational in nature.  It is not intended as an endorsement of their content and does not necessarily reflect the opinion of Anthony M. Cherniawski or The Practical Investor, LLC.

P.O. Box 129  Holt, MI  48842  (517) 699-1554  Fax: (517) 699-1558

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An excerpt from Robert Prechter’s Elliott Wave Theorist market letter

By Elliott Wave International

On January 24, the DJIA, S&P and NASDAQ all lost close to two percent. On a day like that, it’s worth talking about the one indicator they don’t often mention on financial networks – namely, market sentiment.

When is the best time to get out of the stock market? When everyone else is invested and extremely optimistic. When is the best time to buy, then? Exactly: when you see the opposite sentiment.

That’s a contrarian view of the market — and it can be a financial lifesaver.

What’s more, as Robert Prechter, the president of Elliott Wave International, puts it, “the greater the degree of the advance that is ending, the greater the optimism at its peak.”

Below is an excerpt from Prechter’s recent Elliott Wave Theorist, a monthly newsletter he has published since 1978. It shows you one way how Bob finds bearish and bullish extremes in the market.

Learn how you can see 15 more charts from the Theorist that tell a very clear story for 2014.

Conviction among the Bulls
(Robert Prechter, The Elliott Wave Theorist, December 2013)

The Daily Sentiment Index (trade-futures.com) reported 93% bulls twice, on November 15 and 22. Two readings this high are a rarity.

The weekly Investors Intelligence poll on December 11 and 18 showed over 80% bulls among committed advisors (i.e. bulls/(bulls+bears), omitting those expecting a correction), the highest reading since 1987.

Such extreme readings in conjunction are even rarer.

The Rydex family-of-funds data afford good sentiment indicators. Recent figures show a record low investment in conservative money-market funds, meaning nearly everyone is invested in stocks and bonds.

At the same time, the ratio of money in bullish stock funds vs. bearish stock funds is over 5:1, and per sentimenTrader.com the ratio of money in leveraged bull vs. bear funds (see Figure 2) is 10:1!

This reading leaves past extremes in the dust. If you study Figure 2, you will notice that the biggest rush has come in the past six months, which is precisely the time that stocks’ ascent has been slowing!

In other words, optimism is soaring while upside momentum is waning.

Once this epic complacency melts, I doubt we will see such a ratio again in our lifetimes.

15 Hand-Picked Charts to Help You See What’s Coming in the Markets Prepare for 2014 with a complimentary issue of Robert Prechter’s Elliott Wave TheoristHave you ever seen price charts that tell a story clearly? Prechter chose 15 charts to explain to his subscribers where the financial markets are headed in 2014. These charts cover the S&P 500, NASDAQ, the Dow, commodities, gold, and mutual funds.This information prepares you to be on the right side of the market’s next move. And today, you have a rare opportunity to look at the whole issue of Prechter’s Elliott Wave Theorist — FREE. “Charts tell the truth,” says Prechter. Here is your chance to see what truths these charts are telling. If a picture is worth a thousand words, then this latest publication is like reading more than 15,000 words of his market analysis. Get your FREE 10-page issue of Robert Prechter’s Theorist now >>

The Logical Fear Trade – Emotions vs. Analysis & Logic

By Chris Vermeulen

I apologize now for the Christmas colored charts below… Its a lot of red and green but these are the most understood colors for knowing what ranges means (bullish or bearish).

This was a very emotion week for traders. The strong selling Thursday and Friday has traders and investors running for the door and panicking out of positions. While I did close out our long SP500 swing trading on Thursday to lock in a profitable trade, I do feel as though we can re-enter next week a better price.

The only ones feeling pain today are those who do not have enough self-discipline to create rules and trade by them. Again this is talked about in GREAT DETAIL in my new book. If this is you, I recommend buying my book and reading it this weekend as it’s a quick and simple read. There is a paperback version or instant PDF download available: Get Book.

Without self-discipline no amount of courses are trading services will make you a successful trader.

Let’s get technical and jump into the charts…

Momentum Index – The Intraday Extreme Overbought/sold indicator

This is an indicator I follow daily to understand how strong the selling is. If it is broad based or sector related. The last two sessions clearly shows is broad based and that the market has moved to quickly in one direction and is primed for a knee jerk reaction bounce.

Swing Trading Cycles : 3-8 Weekly Overbought/Sold Market Cycles

This is a fantastic tool for timing key pivot lows and highs in the broad market. We are nearing another key pivot low but there is still room for more selling next week.

Options Traders Are Fearful of Continued Selling

If you don’t know what the put/call ratio is, in simple terms it tells us when the majority of traders are buying put options (expecting stocks to fall, ratio of 1.0+), and when they are overly bullish (expecting stocks to rise, ratio below 0.60).

The chart below shows everyone is leaning towards more selling in the stock market. I use this as a contrarian indicator.

The Fear Trade – Shorting Fear with an Instrument that Naturally Loses Value: VXX

There is a lot of interesting way to trade the stock market and once way it through shorting the VXX ETF during bull markets. Instead of buying a long position in stocks, you could simply short the VXX fund. This thing loses value over time because of the way it’s managed/constructed. So logic says, shorting it on bounces can be very rewarding during times when fear is high.

Keep in mind this fund and its underlying index moves FAST with 20-30% percent swings… Trade small position sizes if you ever touch this thing…

Weekly Technical Trading Report Conclusion:

In short, (pardon the pun) I feel the stock market is setting up for another big bounce. The technicals and longer term trend remains bullish. I trade with the trend until proven wrong. Only then will I change the direction and trade with the new trend.

Get These Reports Free Each Week: www.GoldAndOilGuy.com

Chris Vermeulen
Algorithmic Trader

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USDCHF: Sees Bearish Momentum, Targets The 0.8859 Level

USDCHF: With the pair declining sharply to reverse its previous week gains the past week, it now looks to extend that weakness in the new week. While holding below the 0.8986 level, the above view remains valid. This development has paved the way for a run at the 0.8900 level, its psycho level. Further down, support comes in at the 0.8859 level, its Dec 30 2013 low with a cut through here turning focus to the 00.8800 level. A turn below here will set the stage for a push lower towards the 0.8750 level. Its weekly RSI is bearish and pointing lower suggesting further downside. Conversely, to annul its present weakness and resume its short term uptrend now on hold, the pair must break and hold above the 0.9156 level, its Jan 21 2014 high, a tough call at its current price levels. Further out, resistance resides at the 0.9200 level, its psycho where a violation will aim at the 0.9249 level, its Nov 07’2013 high and then the 0.9300 level. All in all, the pair remains biased to the downside on further bear threats.

By www.fxtechstrategy.com